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The UK chancellor of the exchequer announced in the Autumn Statement on December 3 2014 that stamp duty land tax (SDLT) was being reformed for purchases of residential property with effect from December 4 2014.

Purchasers who exchanged contracts before midnight on December 3 2014 could choose whether the new or old SDLT rules and rates should apply.

Under the new rules, rather than pay tax at a single rate on the entire purchase price, purchasers of UK residential property pay the rate applicable to the part of the price within the relevant band. The rates are as follows:

£0 to £125,000 – 0%;

£125,001 to £250,000 – 2%;

£250,001 to £925,000 – 5%;

£925,001 to £1.5 million – 10%; and

more than £1.5 million – 12%.

For lower-value properties, the new rates give rise to a lower SDLT charge than would have been the case under the applicable rates before December 2014.

However, for higher-value properties the SDLT charge may be significantly higher than would have been the case under the old rates. The tipping point occurs at approximately £937,500.

For a property purchased for £10 million, for example, SDLT would be £1,113,750 under the present rates; whereas it would have been £700,000 at the old rate of 7% for properties valued at more than £2 million.

SDLT for residential property purchased by a company or other non-natural person

For residential property costing more than £500,000 that is acquired for private use through a company or other relevant non-natural person (eg, a collective investment scheme or partnership with at least one corporate partner), higher-rate SDLT at 15% continues to apply.

However, if an appropriate relief applies – for example, if the residential property is used for a property rental or development business – the new residential rates will apply instead.

ATED rates

The annual tax on enveloped dwellings (ATED) was introduced in April 2013 as part of a package of measures – which included higher-rate SDLT and the ATED-related capital gains tax charge – to tackle perceived tax avoidance through the use of corporate vehicles to hold UK residential property.

A number of significant changes have been made to the regime since it was introduced which affect the value of properties to which it applies and the rates charged. These are as follows:

For the chargeable period from April 1 2015 to March 31 2016, the ATED charge on properties worth more than £2 million held through such vehicles has increased by 50% above inflation.

A new ATED band for properties valued at more than £1 million and up to £2 million has also been introduced with effect from April 1 2015.

An additional band for properties valued at more than £500,000 and up to £1 million will come into effect on April 1 2016.

The ATED rate increases and rates for the new bands are as follows:

Property valued at more than £500,000 and up to £1 million – presently £0, will be £3,500 from April 1 2016;

Property valued at more than £1 million and up to £2 million – previously £0, is £7,000 from April 1 2015;

Property valued at more than £2 million and up to £5 million – previously £15,400, increased to £23,350 from April 1 2015;

Property valued at more than £5 million and up to £10 million – previously £35,900, increased to £54,450 from April 1 2015;

Property valued at more than £10 million and up to £20 million – previously £71,850, increased to £109,050 from April 1 2015; and

Property valued in excess of £20 million – previously £143,750, increased to £218,200 from April 1 2015.

These are clearly significant increases, particularly given that this is an annual, rather than one-off, charge.

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